American rates trigger a wave of liquidation in the Indian stock market

India’s stock market experienced a significant crash on Thursday, reflecting investor nervousness in the face of potential U.S. tariff hikes. The decline not only hit record levels of volatility but also revealed the structural vulnerabilities of the Indian economy to external trade pressures.

Indian indices record their worst performance in four months

The Sensex fell 0.93%, while the Nifty 50 lost 1.04%, marking the most severe single-day deterioration since August 2021. Over the past seven days, the two benchmark indices have accumulated losses of 1.8% and 1.7%, respectively, demonstrating a coordinated capital outflow.

Giant Reliance Industries led the pessimistic movement, dropping 2.2%, dragging major economic sectors with it. The weakness was widespread: the top 16 sectors closed lower, with metals (down 3.4%, the worst performance in nine months), and oil/gas (down 2.8%).

Export sectors suffer the greatest impact

Companies heavily exposed to the American market were the most affected. Seafood exporters Apex Frozen and Avanti Feeds recorded declines of 7.8% and 8.6%, respectively. The textile sector was even more critical: Gokaldas Exports fell 8.5%, while Pearl Global Industries declined 7.9%.

These declines reflect the reality that more than half of these companies’ revenues come from the North American market, making them extremely sensitive to changes in U.S. trade policies. Larsen & Toubro and BHEL also suffered significant losses, with drops of 3.1% and 10.5%, respectively.

The Russian oil issue and the trade ultimatum

The root of the turbulence lies in the possibility of punitive tariffs of up to 500% on Indian imports. The U.S. government has indicated that these extreme tariffs would be imposed if India continues importing crude oil from Russia, its second-largest supplier by volume.

Currently, the U.S. already applies a 50% tariff on Indian exports. India sought to negotiate a reduction, arguing that it has decreased its trade relations with Moscow. However, energy data shows that the reduction was mainly driven by Reliance Industries after American sanctions on Russian producers, not by a deliberate government policy.

Foreign investor outflows intensify pressure

Tariff uncertainty accelerated liquidation by international investors. Since the beginning of the year, $900 million in foreign capital has been withdrawn from the Indian stock market, contrasting sharply with the record $19 billion in sales in 2022.

Anita Gandhi, head of institutional division at Arihant Capital Markets, summarized market sentiment: “Markets are uncomfortable with the uncertainty regarding tariffs.” The Indian rupee also closed lower, reflecting overall risk aversion. The information technology sector, which had advanced 2.4% in the previous two sessions, lost 2%, illustrating the rapid reversal of trends in high-uncertainty environments.

India’s situation exemplifies how emerging economies, even the most dynamic, remain vulnerable to trade policy decisions by larger economic powers, especially when geopolitical issues such as relations with Russia come into play.